The family home is one of the few tax-free windfalls available in Australia, as it is capital gains tax free when we go to sell.
Real estate experts estimate there are around 8.5 million homes in this country, with more than $3 trillion of Australian wealth tied up in residential property. That’s a lot of dollars!
So how can you pick up a family home that will serve you well financially? Here’s some tips:
1. What you need to know about price
The Australian Bureau of Statistics says house prices across the country rose 4.2% in the quarter to June 2009. Most homeowners love to know the value of their home is rising, but that feeling is hollower than most realise. Rising house prices are not all they are cracked up to be. What we really want is a property that will outperform the price rises in the rest of the market, allowing us to leapfrog ahead of the property game. The aim is to buy a property that will do better than the rest of the market, not merely rise in price at the same rate as other properties.
2. Prices vs affordability
Many property commentators are saying Australian house prices are overpriced, but there seems to be no end of demand for residential property and that ensures prices continue to go one way – up.
Many property pessimists wonder how house prices can keep going up. They predict doom and gloom for house prices because they say if the population cannot afford to pay high prices, the asset prices will fall.
Yet affordability is more important than price. Prices have risen because affordability has improved, which has prompted people to pay more (and increase house prices). Affordability is different to price. Affordability is usually a complex measure between people’s incomes and how easily they can afford to finance themselves into a property.
The Commonwealth Bank and HIA housing affordability report has shown that even though house prices increase, a low-interest rate environment enables people to borrow more and therefore bid up prices.
Price isn’t the only thing that’s important when it comes to property. Other factors like low interest rates, lending policies from banks and whether more new properties are being built also have an influence on the affordability of a house.
3. Sourcing outperformers
Finding a property that will do better than the rest of the market is all about working out your timeframe for home ownership. Do you want to hold for a short period of three to five years? Or are you prepared to stay put for 10 years or more?
The longer you are prepared to own a property, the more likely it is that prices will rise and that you can allow various property cycles to work their magic on your investment.
Research things like population changes, demographics and house prices ( www.onthehouse.com.au have a variety of tools) to gauge the future appeal of the property.
Areas with strong population growth, employment growth, infrastructure projects (new offices, new supermarkets or development) and good public transport and schools are more likely to outperform the market.
4. Financing counts
Paying down a mortgage quickly is an easy way to build equity wealth that can either send you further up the property ladder or give you more scope to invest in other things.
Choosing a mortgage that allows extra repayments without penalty and offers a below-market interest rate is important. Whether you fix your interest rate is not as important as the discipline you have towards making extra repayments on the loan.
5. Against the herd
Properties that outperform are likely to be “sleepers†that no-one expects will do well. That’s why research is so important.
A home buyer cannot think like other buyers, otherwise they are more likely to over-pay for an in-demand property.
Ideally, an outperforming property will have low supply and high demand. Your research has told you that demand will improve over the time you hold the property – so as long as your research is good, then your instincts will prove correct.
Naturally, there are no crystal balls out there to tell us whether house prices are guaranteed to keep rising. But if you buy well, steer clear of the crowds and hold a home for a long period, then you are likely to end up with more equity than someone who buys a premium-priced property with a 10 per cent deposit and wants to sell it quickly. Property is a long-term game, best held for more than 10 years.
Source On The House 2009
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